Response to some of Dave Ramseys teachings and rants.

[PRICEPLUS]

Maybe folks should read as much as they can and use whatever and from whomever if it gets them out of debt. How much you need for retirement is dictated by your lifestyle and where you live. I agree that there is no cookie cutter method to financial security but I believe that coming to sites such as this one can help people as they explore their options.

[MonkeyMama]

Dave Ramsey will get you out of debt. Period. (Well, if it works for you - not saying it is for everybody).

His broader financial knowledge is pretty atrocious. I just came across some article the other day about some of the things he had said about investing that I had not heard. I think a few around here had said "never take investing advice from Dave," and now I see why. The only thing I have ever heard him say on his show is "if you invest 15% of your income with a 12% return annually, you will have a bajillion dollars when you retire." Which would be true if you really earned 12% every year. But I think he kind of needs to put it that way to motivate people. Clearly this is unrealistic. But if that's what people need to hear to care about their future...

What I read recently was that he apparently encourages load funds and high expense ratios. I didn't see anything that disputed this. (I think my initial reaction was, "That can't be true?" so I checked other sources.)

Listen to him to get out of debt, but get your tax and investing advice elsewhere.

[MonkeyMama]

P.S. I find Dave Ramsey inifnitely more reasonable than most of his fanatical fans.

I don't think Dave really believes everyone needs an envelope system to function. He knows most of his followers who start out with out-of-control debt will benefit from that system. & that it works well for him. But I can assure you if I met him and sat down to talk to him and told him how I have never paid a cent of non-mortgage interest in my life and I have always managed my finances electronically, he would say, "That apparently works for you, so good for you." He's said as much on his show many times. HE sounds like a very reasonable person, over all. You just have to realize his core audience and what he is selling to them. His core audience is not anyone with any financial savvy. So he does really dumb it down.

[disneysteve]

What I read recently was that he apparently encourages load funds and high expense ratios. I didn't see anything that disputed this.

He absolutely says that. It is right on his website (well not the high ER part but he clearly recommends front end load funds). I quoted it above.

[kv968]

DisneySteve, Yes, he recommends an 8% withdrawal rate.

You’re going to keep your nest egg invested and averaging 12% growth. We’re estimating inflation at 4%. So, to maintain your nest egg and break even with inflation, you will live on 8% income from your nest egg. That means if you have a nest egg of $625,000, you will live on $50,000 per year: $625,000 x 8% (.08) = $50,000[/I]

How to Wreck Your Nest Egg at Retirement - daveramsey.com

I think the title of the article, "How to Wreck Your Nest Egg at Retirement" is aptly named. Start withdrawing 8% and live more than 15 or so years and you will most certainly "wreck your nest egg"

[DebtFree&Broke]

I am a huge Dave Ramsey fan -- I listen to his 3 hour show everyday and give people his "Total Money Makeover" book for presents. I think his advice is important for people who have debt. If you can't stop spending money and don't use a budget, then you need to use a cash envelope system for some of your expenses.

We have never had a problem with debt. We have used credit cards for 5 or 6 years and pay them off every month. I am using the cash envelope system for my grocery money this month, just because we overspent last month. It's killing me because I'm missing out on my Kroger rewards

His baby steps are a good guide, but we have changed them to fit our goals:

1-Already had $1,500 in savings

2-Already debt free!

3-Had a bunch of money left from saving for taxes last year. I put that money in three CD's to earn $110 a year. If we have an emergency I have a $2,000 CD that I will only be charged $.75 to withdraw from.

4-We like being landlords (currently rent out our basement to pay half our mortgage) so we are going to purchase 4 duplexes like ours to rent out for our retirement income. Someday we need to start using a Roth IRA, but right now we are focusing on remodeling our home so we can earn more equity when we sale it in 2 years. Being self employed we don't make enough some months to add to savings.

5-We aren't going to do college funds for our children. Just like my husband they will be required to work hard and get scholarships. We will probably do "Dave's 401K" plan for our kids when we make more money (matching what they save for college).

6-Pay off home early. Since we are moving in 2 years this isn't a goal yet. But our next home will be our stay forever home so we will be paying it off as fast as we can.

7-We would love to build wealth someday and we are already giving what we can with our budget.

[BudgetSurgeon]

My approach to Budgeting is quite different. You need to list every single budget item down to the detail, and then address each budgeting item one-by-one, and list ways that you can reduce your spending in each. Almost every budgeting category can be reduced by 20% if you spend the requisite time to do this. Yes, it's hard work, but once you establish ways to reduce your budget, you will garner unbelievable satisfaction from the end result, and this will provide you with further impetus to reduce your budget, again and again. Budgeting is hard work, but should be treated like a Business. If you treat it that way, you will be very, very successful at it.

[disneysteve]

Almost every budgeting category can be reduced by 20% if you spend the requisite time to do this.

I'd love to know how I can reduce my mortage, taxes, insurance, gas and other auto costs, utilities, medical expenses, etc. by 20%. Those are the things that make up the vast majority of our budget.

[BudgetSurgeon]

I'd love to know how I can reduce my mortage, taxes, insurance, gas and other auto costs, utilities, medical expenses, etc. by 20%. Those are the things that make up the vast majority of our budget.

Well, mortgage is fixed typically, but by pre-paying you can certainly reduce the amount of principal on the loan SIGNFICANTLY. I have reduced my taxes and insurance costs by over 20% this past year alone. I have been able to reduce gas/oil costs by adhering to certain driving and insulation procedures. I have reduced my medical premiums significantly by moving to a HDP. Without question it can be done; most people are just too lazy to do the necessary work. Last year, overall, I reduced my budget by 22%. With constant increases each and every year (particularly with my Medical Premiums), this becomes an on-going, repetitive process. Most people look to make more money; I look to reduce my expenses, which I have under my control, which provides the same monetary benefit.

[disneysteve]

Well, mortgage is fixed typically, but by pre-paying you can certainly reduce the amount of principal on the loan SIGNFICANTLY.

True, but of course that wouldn't decrease that section of my budget. It would increase it.

As for health insurance, my employer only offers one option so I'm stuck there. Going out and getting any individual policy would be way more expensive.

How exactly did you reduce your taxes by over 20%? Many of my taxes are fixed. I can't control them. I can do things that garner larger deductions but nowhere near 20%.

[BudgetSurgeon]

True, but of course that wouldn't decrease that section of my budget. It would increase it.

As for health insurance, my employer only offers one option so I'm stuck there. Going out and getting any individual policy would be way more expensive.

How exactly did you reduce your taxes by over 20%? Many of my taxes are fixed. I can't control them. I can do things that garner larger deductions but nowhere near 20%.

Well, a couple of things, Steve. I continuously shop around for Health Insurance, and have found plans that I qualify for (with unlimited lifetime benefits) that have made a huge difference for me. If you are hampered by employee options, you won't have as much flexibility. Perhaps by increasing your deductible (if given the option), you can achieve what I've achieved in that area.

Regarding taxes, I have increased my legal deductions, without going overboard, to lower my tax liability. I recently grieved my real estate taxes and got a whopping decrease from that.

I did say MOST, and not ALL, items can be trimmed. I literally take each budget item as a project, and find ways to continually lower my costs. It really works, and that is how I survive in high-priced Long Island.

[Angio333]

I used a strict envelople system when we started to dig out of debt and was trying to control our spending. It worked. We are now debt free and saving money, etc.

[LivingAlmostLarge]

Why would you want to purchase individual health insurance when typically it's a benefit from an employer and cheaper than what you can purchase? Not to mention often times many benefits are excluded from coverage.

I've found that people in NY have a very unusual health insurance that you can shop around for it for cheap than other states.

[nick__45]

dr and ozzman make tons of money telling idiots that clear sky is blue in the afternoon, black at night, and it is snowing in Alaska in winter.

[MonkeyMama]

Why would you want to purchase individual health insurance when typically it's a benefit from an employer and cheaper than what you can purchase? Not to mention often times many benefits are excluded from coverage.

This is the problem - people just assume employer health insurance is the best, when often it is not. If you shop around and the insurance is more expensive and not as good, then fine. But that is sometimes not the case. You won't know until you shop around a bit. Private insurance has always been a far better deal for us. Similar cost, but far better coverage. Which probably has saved us a fortune over the years in out-of-pocket expenses.

I grew up with REALLY good insurance, so have been kind of appalled by my employer offerings. I have worked for small firms and multi national corporations - my experience has been the same all around. I'll keep my private insurance, thanks!